Global Governments Waging War on Corporate Tax Avoidance

Posted by Arleen Thomas, CPA, CGMA on Jun 18, 2013

While
reading through the Sunday New York Times,
I stumbled across an opinion piece on corporate tax
avoidance
that I think is particularly relevant for business and industry CPAs. In
today’s struggling economy, the corporate tax system is a hot button issue both
in Washington and around the world. As companies become more global, we as CPAs
in industry can continue to add value in this area.

The
article, “Who Will Crack the Code?” by David Leonhardt, starts out by talking
about the shift in the soda industry from domestic to foreign concentrate
production—just one example of a thread that runs through many different
industries. Leonhardt notes, “as a result [of moving manufacturing operations
overseas], the industry paid a combined corporate income tax rate of only 19.2
percent over the past six years…the average rate for companies in the S&P
500 was 29.1 percent.”

In
mid-May, Apple’s CEO Tim Cook testified on Capitol Hill about the company’s income
tax payments. According to a Bloomberg article on
the subject,
Cook testified that Apple paid $6 billion last year—a rate of 30.5 percent. “While nobody at the hearing questioned the
figure, it provides a distorted picture of Apple’s total tax burden. Based on
its public filings, the company pays just under 14 percent of its income in
taxes worldwide.”

These kinds of facts add
fuel to the fire of governments looking to reform corporate income tax. In the
United States, the
House Ways and Means Committee is working on reforming the tax code by reducing
the statutory rate while eliminating tax breaks. “The net effect could be to
close the gap between companies that pay relatively little in taxes and those
that pay much more,” said Leonhardt. “The market, rather than the tax code,
would then play a bigger role in determining companies’ success and failure.”

In Europe, the issue
has come up many times in just the past few months: the European Commission announced
that tax evasion and avoidance costs the EU 1 trillion euros ($1.29 trillion) a
year; the Organization for Economic Cooperation and Development has issued a
report critical of profit shifting and will submit an action plan to the G-20
by July; and a parliamentary committee in the U.K. has held at least three
hearings on tax dodging.

So,
are corporations poor citizens for legally minimizing their tax burdens? And
what is a CPA’s social responsibility as a key advisor to those companies? This
issue is a hot one and we are certainly going to hear more about this as the
year goes on. I would love to read your opinions on corporate taxes in the
comments section below.